Generally, no one can transfer a better title in goods than they possess. In the case of a consumer acquiring a vehicle in good faith, s27 of the Hire Purchase Act 1964 (s27) might just come to their rescue. This was the position in the Court of Appeal decision in Kulkarni v Manor Credit (Davenham) Ltd (Manor).
Facts of the case
Mr Kulkarni ordered a Mercedes from Gwent Fleet Management Ltd (Gwent). A confirmation of order was drawn up on 3 March and Mr Kulkarni paid Gwent for the Mercedes in full on that day. Gwent did not own the Mercedes at that time but needed to acquire it. On 11 March, Manor (a finance company) bought the Mercedes in issue from a supplier. On the same date Mr Kulkarni obtained a cover note from his insurers.
On 13 March, Gwent entered into a master assignment agreement with Manor whereby Manor would provide vehicles to Gwent on hire-purchase or hire terms with the intention that Gwent would then provide those vehicles to its customers on sub-hire terms. On 14 March, Manor and Gwent entered into a three-year hire-purchase agreement in relation to the Mercedes. The Mercedes, with its registration plates affixed, was delivered to Mr Kulkarni on the same day.
No payment was made by Gwent to Manor who subsequently repossessed the car and sold it. Mr Kulkarni claimed in conversion against Manor relying on the provisions of s27. S27 provides an exception to the general rule that no one can transfer a better title in goods than he possesses. It provides
(1) "This section applies where a motor vehicle has been bailed or hired under a hire-purchase agreement, or has been agreed to be sold under a conditional sale agreement, and before the property in the vehicle has become vested in the debtor, he disposes of the vehicle to another person.
(2) Where the disposition referred to in (1) is to a private purchaser, and he is a purchaser of the vehicle in good faith, without notice of the hire-purchase or conditional sale agreement, that disposition shall have effect as if the creditor's title to the vehicle has been vested in the debtor immediately before that disposition."
The issue was whether there had been a disposition (a sale or contract of sale or bailment under a hire-purchase agreement) by Gwent at a time when it was a debtor i.e. a hirer under the hire-purchase agreement entered into between Gwent and Manor. If there had been, Mr Kulkarni would have good title to the Mercedes pursuant to s27. If the disposition had taken place earlier, Manor would have better title.
First instance judgment
At first instance, the judge held that the presumption in Rule 5 of section 18 Sale of Goods Act 1979 (Rule 5) applied in ascertaining the parties' intentions as to when property in the Mercedes was to pass, and therefore a disposition take place. Rule 5 provides that where there is a contract for the sale of unascertained or future goods by description, and goods of that description and in a deliverable state are unconditionally appropriated to the contract, property then passes to the buyer. The judge held that the property in the Mercedes had been intended to pass to Mr Kulkarni not at the time of physical delivery but at an earlier time when Mr Kulkarni learned of the registration number and insured the Mercedes, that is on 11 March. At that time there was an appropriation of the Mercedes to the contract and property in the Mercedes passed. This was prior to Gwent having entered into the hire-purchase agreement with Manor and the judge held that s27 could not therefore come to Mr Kulkarni's aid. Manor had better title.
Mr Kulkarni appealed.
Court of Appeal's findings
The Court of Appeal allowed Mr Kulkarni's appeal. It held that for the presumption as to intention in Rule 5 to apply, the Mercedes had to be in a deliverable state which it was not until it had its registration plates affixed to it. There was no evidence that they had been affixed at any time prior to the date of delivery and Mr Kulkarni was not bound to have taken delivery of the Mercedes without the plates attached. The Mercedes was not in a deliverable state as at 11 March even if it was, at that date, ascertained goods.
Rule 5 was not therefore fulfilled before Gwent became Manor's debtor under the hire-purchase agreement. Mr Kulkarni could establish that he became a purchaser of the Mercedes under a disposition which first took place at the time of delivery and thus at a time when Gwent was in a position to transfer the property in the Mercedes under the exception contained within s27.
The Court of Appeal also went on to consider whether there had been an unconditional appropriation of the Mercedes. The judge at first instance had considered that there had been an appropriation once the registration number of the Mercedes had been ascertained and found that Mr Kulkarni obtaining insurance was an assent to that appropriation.
The Court of Appeal disagreed holding that generally, in the case of a sale of a car to a consumer, property is not intended to pass until delivery at which time inspection can take place, and the car's log book or registration documents are handed over. Most buyers would not consent to completion of the purchase without the log book. There would have to be good evidence that the parties intended property to pass prior to delivery before the court would be happy to solve the issue on the basis of the Rule 5 presumption.
Additionally, the court held that Gwent had never had property in the Mercedes to transfer to Mr Kulkarni. It knew it did not, and had no intention of fulfilling its contractual promise to transfer property in the Mercedes. It knew therefore that any assent by Mr Kulkarni to the appropriation of a car in which it had no property had been procured by its own dishonest pretence. Had Mr Kulkarni known the true position, he would not have assented to any appropriation and transfer of title in a car in which the seller lacked title. Rule 5 did not therefore in this case provide a solution to the issue of the parties' intentions.
S27 applied in all the circumstances of the case and Mr Kulkarni's claim would succeed.
Clear evidence would be required to show an intention to pass title in a vehicle to an individual prior to delivery and transfer of registration documents.